Supreme Court Upholds MSME Council's Arbitration Award, Rejects Challenge from Port Authority.
The Supreme Court of India recently delivered a significant judgment on June 13, 2025, dismissing a challenge filed by the Board of Major Port Authority for the Syama Prasad Mukherjee Port, Kolkata (formerly Board of Trustees of the Port of Kolkata) against an arbitral award in favor of Marinecraft Engineers Private Limited. The case, A.P. COM No. 296 of 2024 (Old. No. A.P. 179 of 2023), was presided over by The Honourable Mr. Justice Sabyasachi Bhattacharyya.
The challenge was brought under Section 34 of the Arbitration and Conciliation Act, 1996 (the 1996 Act) against an award passed by the Micro and Small Enterprises Facilitation Council (the Council) under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (the 2006 Act).
Key Contentions and Court's Rulings:
The petitioner, represented by Krishnaraj Thaker and Ashok Kr. Jena, Advocates, raised several grounds for challenging the award, all of which were ultimately rejected by the Court. Shounak Mukhopadhyay, S. Bhattacharya, Anewesha Guha Roy, and Abhijit Guha Roy, Advocates, represented the respondent.
1. Applicability of Section 29-A of the 1996 Act (Mandatory Timeline for Arbitration)
The petitioner argued that the Council's mandate as an arbitral tribunal had terminated by operation of Section 29-A of the 1996 Act, as the mandatory timeline for passing the award had expired.
The Court, referencing its previous judgment in Porel Dass Water & Effluent Control Private Limited v. West Bengal Power Development Corporation Limited, held that the timelines stipulated under Section 29-A of the 1996 Act are not applicable to arbitral proceedings under the 2006 Act. Instead, Section 18(5) of the 2006 Act provides a directory, not mandatory, period of 90 days for completion. The Court emphasized that the 2006 Act is a special and beneficial legislation for MSMEs, and its provisions, including the non-obstante clause in Section 18, prevail in case of conflict. The arbitration under the 2006 Act emanates from that statute, not the 1996 Act, and Section 29-A of the 1996 Act does not apply to such proceedings.
2. Violation of Natural Justice:
The petitioner contended that the Council violated principles of natural justice by not granting adequate opportunity to present its case on merits, particularly for oral arguments after conciliation failed.
The Court meticulously reviewed the minutes of the Council's meetings, both conciliation and arbitration stages, and found that ample opportunity was given to the petitioner. The petitioner had filed its Statement of Defence, written statement, notes of arguments, and had addressed the Council on merits multiple times. The Court noted the petitioner's delaying tactics, including repeated requests for adjournments and pursuing non-maintainable challenges to the Council's jurisdiction. Therefore, the natural justice principle was not violated.
3. Non-submission of GC-3 Form:
The petitioner argued that the award was vitiated because the respondent/claimant did not submit a mandatory GC-3 Form, required for disbursal of dues as per the contract.
The Court found that GC-1 and GC-2 Forms were duly submitted and that the petitioner had certified and approved the completion of work based on these. The GC-3 Form was characterized as a "No Dues Certificate" for full and final settlement. Given that the core of the dispute was non-payment, the respondent could not be expected to submit a "No Dues Certificate," as it would preclude their claim.
4. Merits of the Claims:
The petitioner argued that the Council erred in allowing the respondent's claims regarding illegal deductions and interest, and that it should not have proceeded on concessions made during conciliation.
The Court found that the Council meticulously dealt with the pleadings, written arguments, and oral arguments of both parties, discussing claims under separate heads. The Council came to reasoned conclusions, granting some claims and refusing others, and its award reflected thorough consideration of the evidence. The Court emphasized its limited scope under Section 34 of the 1996 Act, which is not an appeal to reassess evidence.
5. Initiation of Conciliation During Arbitration:
The petitioner claimed that the Council initiated conciliation amidst arbitration proceedings, which constituted a patent illegality.
The Court clarified that the conciliation attempts during arbitration were initiated at the petitioner's own proposal, and did not equate to a re-commencement of the pre-arbitral conciliation, which had already terminated. The Council had already declared the pre-arbitral conciliation a failure and initiated arbitration. These parallel attempts at mutual settlement did not hinder the continuation of the arbitral proceedings.
6. Sub-delegation of Interest Adjudication:
The petitioner alleged that the Council illegally delegated its authority to compute interest to the claimant's Chartered Accountant (CA).
The Court found that the Council had specifically decided all adjudicable elements of interest, including the date from which and the rate at which interest was payable, and had invoked Section 16 of the 2006 Act. The role of the CA was merely to perform the arithmetical calculation based on the parameters already fixed by the Tribunal, thus no "adjudication" was delegated. The Court distinguished this case from precedents where the principal amount or time period for interest calculation was left unadjudicated.
7. Jurisdiction of MSME Council over Works Contracts:
The petitioner verbally argued that the dispute pertained to a "Works Contract" and was not amenable to the Council's jurisdiction under the 2006 Act.
Referring to Hindustan Petroleum Corporation Limited v. West Bengal State Micro, Small Enterprises Facilitation Council, the Court affirmed that "Works Contracts" fall within the ambit of adjudication by the Council under the 2006 Act, provided the unit is registered as an MSME. The expansive definition of "enterprise" in Section 2(e) of the 2006 Act covers both manufacture/production of goods and providing/rendering of services, and Section 17 includes recovery of amounts for both goods supplied and services rendered. The Court reiterated that the 2006 Act is a beneficial statute to be interpreted liberally.
Conclusion:
The Supreme Court concluded that the petitioner failed to establish any grounds under Section 34 of the 1996 Act for interference with the arbitral award. The Court also explicitly stated that the challenge to the Council's Order dated May 12, 2021, regarding its jurisdiction, was not maintainable under the 1996 Act, as it was not an "award" under Section 34, nor did it fall under the appealable orders specified in Section 37.
The Court dismissed the application, affirming the impugned award dated April 28, 2022, passed by the West Bengal Micro, Small Enterprises Facilitation Council. A four-week stay on the judgment's operation was granted for the petitioner to consider further legal recourse.
Section 29, Arbitration and Conciliation Act - 1996
Section 34, Arbitration and Conciliation Act - 1996
Section 37, Arbitration and Conciliation Act - 1996
Arbitration and Conciliation Act, 1996
Section 18, Micro, Small and Medium Enterprises Development Act - 2006
Micro, Small and Medium Enterprises Development Act, 2006